If this opinion indicates that it is “FOR PUBLICATION,” it is subject to revision until final publication in the Michigan Appeals Reports.

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### S T A T E O F M I C H I G A N

C O U R T O F A P P E A L S

PIONEER STATE MUTUAL INSURANCE COMPANY,

Plaintiff

- Appellee, UNPUBLISHED September 29, 2022

v

TYLER G. MCCALLISTER,

Defendant

- Appellant,

NATIONWIDE MUTUAL FIRE & INSURANCE COMPANY,

Defendant

- Appellee,

and No. 359077 Lapeer Circuit Court
LC No. 20

- 053540

- CK

LAWRENCE J. BENTON

, Personal Representative
of the ESTATE OF DONALD RICHARD MATTHIAS, WANDA MATTHIAS, ROBERT S. HOLLANDER, Personal Representative of the ESTATE OF TYLER MICHAEL CARON, and MICKENZIE WILSON,

Defendant s

.

Before: C AVANAGH
, P .J., and G ARRETT and Y ATES
, JJ.

P ER C URIAM

.
Defendant Tyler McCallister appeals as of right the trial court ’ s order granting summary disposition in favor of plaintiff

, Pioneer State Mutual Insurance Company

. This case involves a declaratory

-

judgment action

, in which Pioneer seeks to rescind a no

- fault insurance policy issued- 2

-

to Donald Matthias 1 and defendant Wanda Matthias (collectively, “ the insureds ” ) , to avoid the payment of benefits to McCallister, an innocent third party

. On appeal, McCallister argues that
the trial court erred by granting Pioneer ’ s motion for summary disposition and rescinding the
insurance policy with respect to his claims. For the reasons discussed in this opinion, we reverse and remand for further proceedings.

I. BACKGROUND

This case arises from a mo tor vehicle accident in which Tyler Caron was driving a vehicle owned by the insureds (his grandparents) and covered under a no

- fault policy issued by Pioneer

. McCallister and defendant Mickenzie Wilson were passengers in the vehicle. Caron, McCallister, and Wilson had consumed alcohol, cocaine, and marijuana throughout the night of the accident

. Caron was driving the group to their next location when police officers tried to pull Caron ’ s vehicle

over

. Caron fled at a high rate of speed and crashed into several tree s ; Caron died in the accident,
and McCallister and Wilson were severely injured

.
After Pioneer investigated the matter

, the company informed Wanda that it was rescinding
the insurance policy on the vehicle . The rescission letter cited three reasons: (1) an ineligible

person ( Wanda ’ s daughter ) lived in the home of the insureds when they first applied for a policy and for several years afterward

, (2) Caron was not disclosed as a driver of the vehicle in the
accident , and (3) th is vehicle was not being garaged at the insured address

. Wanda and Donald ’ s estate accepted and deposited a check from Pioneer refunding their premiums.

Later, McCallister filed for no

- fault personal protection insurance (PIP) benefits with the Michigan Assigned C laims Plan (MACP) , which assigned defendant Nationwide Mutual Fire & Insurance Company as the carrier. After both Nationwide and McCallister filed lawsuits, Pioneer filed this declaratory

-

judgment action seeking a declaration that its policy was rescinded

. Pioneer moved for summary disposition against all defendants and the trial court granted its motions. T he
trial court rescinded Pioneer’s policy as to McCallister after a balancing of the equities. This appeal followed.

II. ANALYSIS

McCallister argu es that the trial court erred by granting summary disposition in favor of Pioneer and rescinding the polic y

.

A. STANDARDS OF REV IEW

We review de novo a trial court ’ s decision to grant summary disposition. Pioneer State Mut Ins Co v Wright , 331 Mich App 396, 40 4 ; 952 NW2d 586 (2020).

When considering a motion brought pursuant to MCR 2.116(C)(10), the trial court must review the evidence in the light most favorable to the nonmoving party. Summary disposition is only appropriate when there is no genuine i ssue of material

1 Donald passed away after the accident in this case

, and his estat e was named as a defendant.- 3

-

fact. A genuine issue of material fact exists when the record presents an issue upon which reasonable minds might differ. [ Id

. at 405 (citations omitted).]

“ Rescission is equitable in nature, and therefore, the remedy is granted only wit hin the trial court ’ s discretion. ” Id

. at 410. A trial court abuse s its discretion when its decision falls outside the range of reasonable and principled outcomes. “ The trial court ’ s factual findings are reviewed for clear error, and a finding is clearl y erroneous if the reviewing court is left with a definite and firm
conviction that a mistake has been made. ” Id . at 406.

B. WAIVER

McCallister first argues that Pioneer has waived any claim of rescission because it
announced a cancellation of the insur ance policy before attempting to rescind the policy.
McCallister ’ s claim of waiver was not raised in the trial court and is therefore itself waived. See
Walters v Nadell , 481 Mich 377, 387; 751 NW2d 431 (2008) (explaining that Michigan courts generally follow the “ raise or waive ” rule of appellate preservation in civil cases).

Even if we exercised our inherent authority to review the issue, we would conclude that
the claim of waiver lacks merit. McCallister relies on Burton v Wolverine Mut In s Co , 213 Mich App 514, 517; 540 NW2d 480 (1995), in which this Court concluded that the insurer waived its right of rescission when, after discovering a material misrepresentation i n the application, it chose to issue a notice of cancellation, which was e ffective on a future date. This Court concluded that the insurer’s actions induced the insureds to believe that they would have insurance coverage until
the effective date of the cancellation. Id . at 518. McCallister failed to establish that a cancellat ion
occurred in this case. Unlike in Burton , there is no evidence that a notice of cancellation was sent to the insureds. Rather, McCallister relies on Wanda’s testimony that the insurance agent told her that her policy had been cancelled. But there is no evidence that either Wanda, or the agent, was using the term “cancel” in the legal sense of the term. Bill Comstock, a claims manager for Pioneer, also denied that a cancellation had occurred and testified that the policy was rescinded.
Pioneer submit ted as evidence the check refunding the insureds’ premiums, which the insureds
cashed. Accordingly, McCallister’s claim of waiver lacks merit because there is no genuine issue of material fact that the policy was rescinded and not cancelled

.

C. FRAUD

Next, McCallister argues that Pioneer failed to establish by clear and convincing evidence that the policy was procured by fraud

.
“Michigan’s contract law recognizes several interrelated but distinct common

- law
doctrines

— loosely aggregated under the rubri c of ‘fraud’

— that may entitle a party to a legal or equitable remedy if a contract is obtained as a result of fraud or misrepresentation.” Titan Ins Co v Hyten , 491 Mich 547, 555; 817 NW2d 562 (2012). An insurer may seek rescission of the contract for “f raud related to the inducement to or inception of the contract.” Meemic Ins Co v Fortson

, 506 Mich 287, 305; 954 NW2d 115 (2020). “ Rescission abrogates a contract and restores the parties to the relative positions that they would have occupied if the con tract had never been made

. ” Bazzi v Sentinel Ins Co , 502 Mich 390, 409; 919 NW2d 20 (2018).- 4

-

In Univ of Mich Regents v Mich Auto Ins Placement Facility , ___ Mich App ___, ___; ___ NW2d ___ (2022) (Docket No. 354808) ; slip op at 5, this Court held that “ trial courts are required to balance the equities between a defrauded insurer and an innocent third party before extending
the mutual rescission of a no

- fault insurance policy to an innocent third party. ” Mutual rescission
between the insurer and the insu red, unlike the equitable remedy of rescission granted in the sound
discretion of a trial court , may be accomplished “ by return and acceptance of the premium. ” Id

. at 4. See also Meemic , 506 Mich at 310 n 19 (explaining the limited distinctions between t he equitable and legal remedy of rescission).

In this case, Pioneer refunded the insureds ’ premiums and the insureds accepted and cashed
the check from Pioneer. Thus , a mutual rescission occurred that restored Pioneer and the insured s to the status quo t hat existed before the insurance contract was formed

. See Puffer v State Mut
Rodded Fire Ins Co , 259 Mich 698, 702; 244 NW 206 (1932) ( “ The failure of the parties to make a verbal agreement of settlement, separate from the indorsement on the check, is not of

consequence

. ” ). After finding a mutual rescission, the trial court did not address or decide whether
fraud occurred

, nor was it required to do so to rescind the policy as to McCallister

. Therefore, we need not consider whether the policy was properly rescinded as to the insureds because of fraud

.

D. BALANCING OF THE EQUITIES

Finally, McCallister argues that rescission of the no

- fault policy was improper as to him because he is an innocent third party and, when balancing the equities, the relevant fa ctors weigh against rescission. Although McCallister did not specifically address each of the balancing

- of

- the

equities factors before the trial court, he generally argued that a balancing of the equities did not support rescission. Because a party may m ake a more developed argument on appeal, this issue is preserved for our review. Glasker

- Davis v Auvenshine , 333 Mich App 222, 22 8 ; 964 NW2d 809 (2020).

O ur Supreme Court has set forth these principles underlying the equitable remedy of
rescission:

When a plaintiff is seeking rescission, the trial court must balance the equities to determine whether the plaintiff is entitled to the relief he or she seeks. Accordingly, courts are not required to grant rescission in all cases. For example,
rescission sho uld not be granted in cases where the result thus obtained would be unjust or inequitable, or where the circumstances of the challenged transaction
make rescission infeasible

. Moreover, when two equally innocent parties are affected, the court is required , in the exercise of [its] equitable powers, to determine which blameless party should assume the loss

. . . . [W]here one of two innocent parties must suffer by the wrongful act

. . . of another, that one must suffer the loss through whose act or neglect such third party was enabled to commit the wrong. The doctrine is an equitable one, and extends no further than is necessary to protect the innocent party in whose favor it is invoked

. [ Bazzi , 502 Mich at 410

- 411 ( emphasis added; quotation marks and citations omitted; alterations in original).]- 5

-

And as stated above, “ trial courts are required to balance the equities between a defrauded insurer [ 2 ] and an innocent third party before exten ding the mutual rescission of a no

- fault insurance policy to an innocent third party. ” Univ of Mich Regents , ___ Mich App at ___; slip op at 5

.

To help trial courts exercise their equitable discretion in innocent

- third

- party cases, Justice
M ARKMAN outlin ed a “ nonexclusive list of factors ” trial court s should consider when ruling on
rescission

. Farm Bureau Gen Ins Co of Mich v ACE American Ins Co , 503 Mich 903, 906

- 907 ; 919 NW2d 394 (2018) ( M ARKMAN , J., concurring). We subsequently adopted the factors
discussed in Justice M ARKMAN ’ s concurrence, concluding that they “ present [] a workable framework as well as necessary guidance to the lower courts and the litigants. ” Wright , 331 Mich App at 411

. Consequently, trial courts should consider the factors bel ow when resolving the issue of rescission as applied to an innocent third party:

(1) the extent to which the insurer could have uncovered the subject matter of the fraud before the innocent third party was injured; (2) the relationship between the
fraudule nt insured and the innocent third party to determine if the third party had some knowledge of the fraud; (3) the nature of the innocent third party ’ s conduct, whether reckless or negligent, in the injury

- causing event; (4) the availability of an
alternate avenue for recovery if the insurance policy is not enforced; and (5) a determination of whether policy enforcement only serves to relieve the fraudulent
insured of what would otherwise be the fraudulent insured ’ s personal liability to the innocent third pa rty. [ Id .]

“ Balancing the equities is not concerned with assigning blame but, rather, with determining which of the innocent parties should bear a loss. ” Id . at 414.

The trial court found that the first factor

— the extent to which Pioneer could have
uncovered the insureds ’ alleged misrepresentation s before McCallister was injured

— favored rescission because Pioneer had no reason to question the truthfulness of the insureds ’ representations. In Wright , 331 Mich App at 412, however, this Court found that the first factor
did not weigh in favor of either party when no evidence suggested that there could have been a more diligent effort on the part of the insurer to discover alleged misrepresentations

. Here, there is similarly no evide nce that Pioneer could have done more to discover the alleged misrepresentations about who was living at the policy address or driving the vehicle at issue

. “[A] n insurer ha s no duty to investigate or verify the representations of a potential insured, ” Ti tan Ins
Co , 491 Mich at 570, and Comstock testified that it was the obligation of the insureds under the policy to report any changes after the initial application. As for the garage change, the evidence suggests that Pioneer was informed of the contradic tion, but did not make any further inquiry. A change request made in 2015 indicates that “[g]araged location has been removed” for the vehicle
involved in the accident. T his notation suggests that the insureds disclosed a change in the garaging location and that Pioneer knew about th e disclosure

. Although the first factor “does not impose a duty to investigate upon insurers,” it does consider “any information disclosed” by the insured in the procur ement of insurance. Wright , 331 Mich App at 412 n 6. Accordingly, this

2 As previously discussed, we draw no conclusion about whether Pioneer was actually defrauded by the insureds.- 6

-

factor is either neutral or weighs slightly against rescission. The trial court erred by finding that it supported rescission.

The trial court found that the second factor

— whether M cCallister had knowledge of the
fraud

— weighed against rescission because there was no evidence that McCallister knew that the
insureds made a misrepresentation. Pioneer agrees and concedes that this factor weighs against
rescission. See Wright , 331 Mich App at 412 ( “ The second factor, the innocent third party ’ s potential knowledge of the fraud, weighs against rescission because there is no evidence that [the innocent third party] was ever aware of [the insured ’ s] representations. ” ). Therefore, the trial court did not err by finding that this factor weighed against rescission.

The trial court found that the third factor

— the nature of McCallister ’ s conduct, whether reckless or negligent, in the injury

- causing event

— was neutral . The court explained that wh ile
McCallister and Wilson “ did not hing directly to cause the crash that resulted in their injuries

, they
should have been aware that they were exposing themselves to a heightened risk of harm as a result of voluntarily riding in a vehicle operated by a pe rson they knew or should have known was consuming alcohol, marijuana, and cocaine in their presence. ” In Wright , 331 Mich App at 412,
this Court found that th e third factor weighed against rescission because the innocent third party

was merely a passenger and was not involved in the operation of the vehicle. Similarly, McCallister was a passenger in Caron ’ s vehicle and was not involved in its operation. Even if
McCallister were negligent by riding in the vehicle with knowledge that Caron was intoxicated or under the influence of drugs, McCallister ’ s negligence did not contribute to the accident. The

“ injury

- causing event ” was Caron ’ s decision to speed away from pursuing police officers while possibly intoxicated. And McCallister testified th at after Caron failed to pull over, he told Caron to stop the vehicle multiple times

. Because McCallister ’ s conduct did not contribute to the accident, this factor weighs against rescission

, and the trial court erred by finding that this factor

was neutra l.

The trial court found that the fourth factor

— the availability of an alternat iv e avenue for recovery if the insurance policy is not enforced

— favored rescission because McCallister would continue to receive PIP benefits from Nationwide and might recover some portion of his third

party claim from the estates. The availability of another source of PIP benefits, from Nationwide in this case, weighs in favor of rescission. See Wright , 331 Mich App at 414. See also Farm
Bureau , 503 Mich at 906 ( M ARKMAN , J., concurring) (stating that an alternat iv e avenue for recovery may include the assigned claims plan). McCallister argues, however, that neither estate has sufficient assets to pay third

- party tort damages and thus the trial court erred by finding that
this was an alternative source of recovery. The trial court acknowledged that the estates may be insolvent, but still found that this factor supported rescission. Importantly, in Wright

, 331 Mich App at 413, this Court noted that “ the fourth factor considers the present situation. ” The trial court noted the possibility that the estates might be insolvent, but there was no evidence presented that they were, in fact, insolvent. At any rate, recovery from Nationwide remains an available alternative option. Be cause there are alternative sources of recovery available to McCallister , the trial court did not err by finding that this factor weighed in favor of rescission.

Finally, the trial court found that the fifth factor

— a determination of whether policy
enforc ement only relieves the fraudulent insured of what would otherwise be the fraudulent
insured ’ s personal liability to the innocent third party

— weighed somewhat in favor of rescission- 7

-

because enforcing the insurance policy would not primarily shift liability from the fraudulent insured to the innocent insurance company, but some tort liability might shift to Pioneer. In Wright , 331 Mich App at 414, this Court found that this factor was not applicable when the

“ fraudulent insured ” was not involved in the accident. See also Farm Bureau Gen Ins Co of Mich
v ACE American Ins Co , 337 Mich App 88, 107; 972 NW2d 325 (2021). Similarly, this factor is not applicable in this case because the alleged wrongdoers are the insureds, who were n ot involved
in the accident. Therefore, the trial court erred by finding that this factor supported rescission. 3

The trial court erred in several of its findings. In total, two factors weigh against rescission, one factor is neutral (or slightly weighs against rescission), one factor weighs in favor of rescission, and one factor does not apply. Still, “ the factors are not to be merely counted up, and the ultimate issue is which innocent party should bear the loss. ” Farm Bureau , 337 Mich App at 108. Pr operly weighing the factors, we conclude that e xtending the mutual rescission to McCallister w ould be
in equitable . Under the circumstances of this case

, where the only consideration supporting rescission is the availability of recovery through the MACP, a nd where McCallister did not know
about the alleged fraud and did not contribute to the injury

- causing event, McCallister should not bear the loss. Accordingly, t he trial court abused its discretion by granting rescission as to
McCa llister and erred by granting summary disposition in favor of Pioneer on its claim against
McCallister.

We reverse and remand for proceedings consistent with th is opinion. We do not retain jurisdiction.

/s/ Mark J. Cavanagh
/s/ Kristina Robinson Garrett /s/ Christopher P. Yates

3 Although the list in Wright , 331 Mich App at 411, is nonexclusive, the parties have not identified

, and the trial co urt did not discuss

, any other factors that should be considered in this case.